11 March 2022 4:07

What is the top heavy test for 401k?

A plan is top-heavy when the owners and most highly paid employees (“key employees”) own more than 60% of the value of the plan assets. This ratio is tested every year based on the account balances on the last day of the prior plan year.

Who gets a top heavy minimum?

The top-heavy rules generally ensure that the lower paid employees receive a minimum benefit if the plan is top-heavy. A plan is top-heavy when, as of the last day of the prior plan year, the total value of the plan accounts of key employees is more than 60% of the total value of the plan assets.

What is a top heavy vesting schedule?

Under this schedule, a participant vests gradually, starting at 20 percent vested after two years of service, 40 percent after three years, and so on until 100 percent vested after six years of service.

What is considered highly compensated for 401k testing?

The IRS defines a highly compensated employee as someone who meets either of the two following criteria: A worker who received $130,000 or more in compensation from the employer that sponsors his or her 401(k) plan in 2021. For 2022, this threshold rises to $135,000.

What is top heavy testing?

Top-heavy testing assesses account balances of key employees as a percentage of the total plan assets. A plan is top-heavy if account balances of key employees represent more than 60% of the account balances of all employees.

Who is included in top heavy test?

A plan is top-heavy when the owners and most highly paid employees (“key employees”) own more than 60% of the value of the plan assets. This ratio is tested every year based on the account balances on the last day of the prior plan year.

Can a safe harbor 401k be top heavy?

A safe harbor 401(k) that has only elective deferrals and safe harbor matching contributions is generally exempt from being top-heavy. If the plan is making a nonelective contribution of 3% to all employees, it automatically satisfies the top-heavy contribution requirement.

What are top heavy contributions?

A defined contribution plan is top-heavy when, as of the last day of the preceding plan year (the determination date), the aggregate value of the plan accounts of key employees exceeds 60% of the aggregate value of the plan accounts of all employees under the plan.

Can a 403b plan be top heavy?

The top-heavy determination does not apply to 403(b) plans.

Are rollovers balances included in top heavy test?

Rollovers from related plans, however (such as when the employer terminates a plan and its employees roll over their balances to the new replacement plan), are included in the top-heavy testing.

What compensation is used for a top-heavy contribution?

The definition of compensation used for calculating the top-heavy minimum contribution is IRC Sec. 415 full-year gross compensation.

Can a money purchase plan be top-heavy?

A plan is considered top-heavy if the company’s owners and highly compensated employees own more than 60% of the money purchase plan’s total assets.

Are loans included in top-heavy test?

Are outstanding loan balances included in the market value used in the top-heavy Ratio? A. Yes. Loans are considered to be plan assets.

Does my employer know my 401k balance?

Subject: Can employer see your 401k balance? Yes, whoever the plan administrator in your company can see your balance and your investment elections.

What is the maximum 401k contribution for 2021?

$19,500

Employees can contribute up to $19,500 to their 401(k) plan for 2021 and $20,. Anyone age 50 or over is eligible for an additional catch-up contribution of $6, and 2022.